Now That The Fed Has Announced QE Unlimited, Here's What They Do Next

Today the Fed announced Unlimited QE, meaning that it will buy
bonds until the labor market improves "substantially."

The idea is that rather than announcing a program with a fixed
end date, the Fed will be able to get more bang for its buck by
committing not to do any tightening of any sort until thigns
improve significantly.

The move was lauded by economists who have been urging the Fed to
pre-commit to loose money in the future as a means of stimulating
growth now.

So let's say things stay kind of sluggish, and the Fed wants to
boost things some more.

What does it do? It starts to define the word "substantially."

Jan Hatzius at Goldman explains:

Mr. Bernanke hinted at further communication changes in an even
more aggressive direction if today's actions prove insufficient.
In response to a question, he said "clarifying our response to
economic conditions might be one way in which we could further
provide accommodation." We read this as openness to even more
aggressive communication changes along the lines of the Evans 7/3
rule or even a nominal GDP target. While these (especially the
latter) still seem quite far off, we did note with interest that
Mr. Bernanke mentioned it unprompted in response to a more
general question about the importance of credible commitment
emphasized in Michael Woodford's Jackson Hole study (which
advocates such a target).

The Evans 7/3 rule is simply: The Fed won't stop easing until
unemployment is at 7% or core inflation is at 3%. And a nominal
GDP target is just that, a target for the total size of GDP,
something that can be achieved by either raw growth or inflation.

What's clear is that the Fed has now set itself on a new course,
one not defined by numbers and volumes (of bond purchases) but
one defined by future commitments towards easy action.

Future guesses about FOMC decisions will now likely revolve
around what the Fed says to define when it has hit its goals.
These are interesting times.